Pricing formula at gasoline stations doesn’t make cents
Hyundai Motor America announced the other day that it would allow people to return their new cars if they lost their jobs. This was an impressive -- and all-too-rare -- example of a company getting that its first allegiance should be to its customers, especially during rough times.
More on that in a moment. But first, let’s look at a related industry: gas stations, which are an example of businesses that don’t get the idea of treating their customers with respect.
Unlike Hyundai’s we’re-all-in-this-together approach, gas stations go out of their way to mislead people with an archaic pricing system that serves no purpose but to make drivers believe they’re getting a better deal at the pump than they are.
Or maybe you think it makes perfect sense for people to be charged nine-tenths of a penny per gallon more than the whole numbers more prominently displayed on gas-station signs.
“Now that you mention it, it doesn’t seem fair,” said Odette Nazarian, a 36-year-old accountant, as she filled her Lexus recently at a Westside gas station with premium gas costing $2.17 9/10 a gallon.
“I suppose they round off the price,” she said. “But I doubt they ever round down. This probably adds up to a ton of money for the gas stations over the years.”
Like me, you’ve probably paid an additional nine-tenths of a penny per gallon your entire driving life. And like me, you’ve probably never really questioned the practice.
But ask yourself: When you see gas selling for, say, $1.89 9/10 , does that register in your mind as $1.89 or $1.90?
“It comes down to marketing,” said Jeff Lenard, a spokesman for the National Assn. of Convenience Stores, which represents about 40% of the 115,000 convenience stores nationwide that pump gas.
“When you go to a gas station, $2.29 9/10 sounds cheaper than $2.30,” Lenard said. “That’s why everyone does it.”
He’s right, of course. Retailers have long known that a product sold for $9.99 is perceived by shoppers as a better deal than an identical product priced at $10.
But the addition of nine-tenths of a cent only muddies the water (as is the case at 99 Cents Only Stores, which now charges 99.99 cents). This is an amount, after all, for which no unit of currency exists. Consumers simply can’t pay the advertised price. Some sort of rounding will always be required.
So how did such a bizarre system begin? Dan Gilligan, president of the Petroleum Marketers Assn., whose members account for about 60,000 gas stations nationwide, pointed a finger at the federal government’s Revenue Act of 1932.
The bill imposed a penny-per-gallon excise tax on gas. The levy rose to 1 1/2 cents a gallon when the tax was renewed in 1933. It stands today at 18.4 cents a gallon.
“Even back in the early days, gas was taxed in tenths of a penny,” Gilligan said. “So that’s how it was priced. Obviously this meant something when gas cost about 20 cents a gallon. As time went on, the practice was never discontinued.”
Clearly it would have made pricing more transparent for the nine-tenths to disappear once gas topped $1 a gallon for the first time in 1979. From that point on, fractional pricing essentially became meaningless and whole numbers should have become the industry standard.
That never happened. So the question all consumers should be asking is whether they’re routinely being hosed by station owners who collect an extra one-tenth of a penny here and there by rounding up to the next cent.
Every driver I spoke with at gas stations throughout the city said they assumed this was how the system worked.
Don Onwiler, executive director of the National Conference on Weights and Measures, an organization dedicated to ensuring consistent measurement standards in all 50 states, insisted this wasn’t the case.
“The dispensers will always round to the nearest whole cent,” he said. “In some cases, that means rounding up. In some cases, it means rounding down. Statistically, neither the seller nor the buyer should come out ahead.”
Onwiler said his inspectors had never come across a gas pump that rounds only up. He said drivers would just have to trust that gas stations were operating fairly.
I don’t know about you, but I have issues with the whole trusting-of-corporations thing. That’s why my first reaction to Hyundai’s pitch to newly unemployed customers was one of suspicion.
I mean, bring back the car? And it won’t affect your credit? There had to be a catch.
Well, there are some strings attached. For instance, the return policy applies only if you lose your income within 12 months of buying or leasing a car. Also, you need to have made at least two monthly payments and be current on remaining payments. Folks who pay cash aren’t eligible.
Most important, Hyundai will cover no more than $7,500 in depreciation. So if you beat the heck out of your ride and it’s worth $10,000 less than what you paid for it (as per Hyundai’s appraisal), you’ll have to come up with $2,500 in extra scratch.
That said, this looks like a great deal from the same carmaker that came up with the equally impressive 10-year, 100,000-mile warranty. South Korea’s Hyundai is saying loud and clear that it stands behind its products and it stands behind its customers.
That’s just good business -- and it’s a wonder this same commitment to customer satisfaction isn’t shared by all companies. If you believe in what you’re selling, and if you desire a long-term relationship with your customers, isn’t this the only way to operate?
It’s all about respect. Hyundai gets it. Chevron, Shell and their ilk don’t.
And I say that with more than nine-tenths sincerity.
David Lazarus’ column runs Wednesdays and Sundays. Send your tips or feedback to email@example.com.